WHITE PAPER

Five Seismic Changes in E‑rate 2.0

Tony Wilhelm is Vice President for Government-Supported Programs at Affiniti.  For two decades Tony has been a leader in education technology, as an executive in USAC’s E‑rate program as well as running a $4 billion broadband grant program that has connected thousands of K–12 schools across the country.  Tony works with Affiniti clients to optimize their E‑rate and Telehealth initiatives.

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shutterstock_142996573The E‑rate program has never been easy to navigate.  Now comes along the biggest overhaul in its history.  This paper boils down the 176-page July 2014 rule changes, concentrating on five seismic changes that will impact school districts where it matters most—in their wallets.  While additional changes were set in motion on December 11, those will be the subject of future commentary.  For now, it is enough to concentrate on the July E‑rate Modernization Order, which describes historic changes the FCC is making heading into the 2015 funding year. I took the yellow highlighter out and marked those areas likely to have a material impact on school district budgets. Yes, there are new forms.  And, yes, applicants now have to retain documents for 10 years instead of 5.  No doubt these have K-12 leaders’ attention. Other changes, especially those that alter discount levels and change the types of services school districts can count as E‑rate eligible, will have school technology leaders and finance executives scrambling for years to come.

School technology leaders should fasten their seatbelts.  They may be in for a bumpy ride if they are not prepared to take advantage of these changes.  For applicants who can navigate “E‑rate 2.0,” enormous opportunities await.  For those who are playing catch up in implementing a 1:1 learning program or readying your schools for computer-based assessments, E‑rate 2.0 can help close the gap.

According to a recent national survey, fewer than 1 in 10 K–12 IT leaders say they have adequate bandwidth to their buildings and within their classroom to meet their skyrocketing demand for technology-rich learning.

The good news is E‑rate 2.0 devotes more funding and a sharper focus to bridging the divide.  This white paper shines the spotlight in five areas to help smooth out school districts’ E‑rate experience so they are better positioned in 2015 and beyond to accomplish their important mission.

#1.  New bandwidth goals no substitute for school districts knowing the value they seek

Having national goals and measures is really helpful to orient school decision-makers.  They will get us all aiming for the same targets. E‑rate 2.0’s new goal is that schools and libraries have affordable access to high-speed broadband sufficient to support digital learning in schools and libraries.  This is a fantastic goal.  And the measure toward meeting this goal in the short term is 100 Kbps per student scaling to 1 Mbps per student long term for Internet connectivity.  A robust WAN connection should support 10 Mbps per student long term. Most school districts meeting these goals will likely have sufficient bandwidth to meet their needs.  PARCC, a consortium of 12 states plus D.C. that is cooperating to develop a set of K-12 assessments, recommends 100 Kbps per student to support their computer-based assessments while simultaneously enabling robust digital learning. These goals represent a seismic shift for school districts today, the overwhelming majority of which do not have the wherewithal to meet them.

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These yardstick are incredibly valuable, but there is no substitute for school district leaders knowing their network, forecasting their digital learning needs well into the future, and having a scalable network to “future proof” them against unanticipated bandwidth growth.  School districts might otherwise spend more money than necessary chasing one-size-fits-all connectivity goals. The difference is between a bottom-up and a top-down approach. According to NTCA-The Rural Broadband Coalition in a filing to the FCC, “to give each school and library what it needs to achieve its educational or societal mission, the E‑rate program must account for the unique need that each individual school or library has.”  This will take planning at the local level—and partnership.  School district leaders should look for a technology partner who understands their long-term needs, can offer a total solution to achieve the value they seek, and knows the ins and outs of the new E‑rate program.  A solutions provider of choice should meet their customers’ unique needs and take maximum advantage of the new E‑rate discounts.

Technology and education leaders: know your network, plan what you are trying to achieve with digital learning and have a scalable solution that can meet your current and future needs.

#2. The new nomenclature – language matters

Pay attention to the new E‑rate language.  Sometimes when people change their messaging, it’s just window-dressing.   This time it really matters.  In the past E‑rate had a “priority” system – kind of like priority boarding on an airline– where telecommunications and Internet access services went to the front of the funding line.  That approach has been replaced with a “category” system in which broadband connectivity within buildings (category 2) is put on equal footing, more or less, with connections to buildings (category 1).  Whereas applicants’ priority 2, now category 2, requests did not get funded at all in the past two funding cycles, given how oversubscribed the E‑rate program has been, the Federal Communications Commission has targeted $1 billion for each of the next two years for what they are calling “internal broadband connections” to avoid a two-tiered funding system.

While many school districts have been sidelined in seeking funding for internal broadband connections, given the lack of E‑rate funding the past two years, the infusion of new money into category 2 services should generate resurgent demand in 2015

Another new component of the category 2 funding is “managed internal broadband services,” which is basically managed Wi-Fi.  For the first time, E‑rate support will cover the operation, management, and monitoring of a wireless local area network (WLAN).  Unlike the past two years where applicants could apply for funding for internal connections gear – routers, switches, wireless access points – and not get funded, this year school districts can also contract with a third party to have them manage the entire WLAN for up to five years and have a good chance of it getting funded.  For districts who don’t have dedicated technology staff, large capital budgets for equipment and who are looking to total cost of ownership, the managed solution may be an attractive option.

Leveraging these changes will take planning and strategy for school technology and education leaders to ensure they are not just “chasing the money,” but that they have a solid plan to ensure E‑rate meets their current and future digital learning needs.  Schools districts who have given up on any chance of category 2 funding will need to get up to speed quickly on their Wi-Fi options—and how to align them with their budgetary constraints and classroom learning needs.  Only then can they put the right 470/RFP on the street to satisfy them.

Understand your Wi-Fi options. Districts can now receive E‑rate support to purchase a managed Wi-Fi service for up to five years.  Whether you are thinking about buying your own gear and managing internally or outsourcing as a service, look to total cost of ownership to help guide your decision-making.

#3.  Wi-Fi budgets have floors and ceilings

Schools’ Wi-Fi options are limited by a per-student funding ceiling over a five-year time horizon.  The magic number for K-12 schools is $150 per student pre-discount over five years to ensure ultra-fast connectivity in the classroom.  You might ask, where did this number come from? Well, the FCC collected cost data from a number of state-of-the-art deployments across the country and found they were by and large under the $30 per-student per-year allocation.  Many of those were large-scale deployments that took advantage of economies of scale.  If you are a smaller school district unable to aggregate your purchasing, then costs may well be higher than with full-on statewide deployments. For really small schools, the FCC has set a funding floor of $9,200 pre-discount to purchase services over a five-year period.

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School districts: you now have five-year budgets with which to purchase services to upgrade your LANs/WLANs.  You will want to consider how to allocate your per-student dollars, including handling one-time and recurring costs for Wi-Fi services.

#4.  Salvaging Voice Service

Focusing on broadband at the expense of non-broadband services, including voice services, translates into significant E‑rate eligibility trade-offs. Tech leaders should review the eligible services list for 2015 for specifics. Beginning this funding year, website hosting, email, custom calling and paging services, among other offerings, will be completely eliminated. Voice services are still eligible but their discount rate is reduced 20 percentage points per year, starting this year, until they are phased out. What this means for school districts is that they will need to comb through phone bills to parse the services and components on which they can no longer receive discounts. The E‑rate fund will wring out roughly $3.6 billion in “savings” over the next five years in funding going to voice and non-broadband services in order to support a $5 billion investment in Wi-Fi.

While trade-offs are understandable in a world of limited resources, they do have consequences.

The Consortium for School Networking’s survey of school district leaders, for example, found that 9 out of 10 said they would be impacted by the phase out of voice services, including Voice over IP.

The Pennsylvania Department of Education’s concern was more pointed in a letter to the FCC:  “the elimination of E‑rate subsidies for these services is going to have a substantial impact on school district and library budgets at a period when education funding is extremely scarce.”

The phase out of voice services is an example of where school districts may be able to turn a negative into an opportunity to protect their wallets.  K–12 technology leaders will want to look at whether there are voice solutions that could provide a lower total cost of ownership over time, such as hosted VOIP.  Hosted VOIP services have been shown to be more cost-effective than continuing to depend on circuit-switched telephony.  A school district with a 90% discount in funding year 2014 would still be eligible for voice discounts over four more years at an average discount rate of 40%.  Finance executives in school districts will need to run their own numbers, but this glide path may be an option for some, allowing a migration to VOIP and a softer landing in out years in terms of total cost of ownership over relying on traditional phone service.

shutterstock_170370494In a filing to the FCC, Affiniti has also added our voice to those stakeholders who believe that the Agency should hit the pause button on the voice phase down after two years and await the results of an internal FCC report, required to be completed no later than October 2106, before taking further steps. One irony of the phase down is that school districts forced to devote more money to cover the cost of voice services will have less to pay for their share of broadband services, making it more difficult for the FCC to achieve its overall goal discussed earlier in this paper. Since 90% of school districts are adversely impacted by this new policy, the FCC is wise to take stock of any unintended consequences after two years to course-correct where necessary.

Nine out of 10 school districts are impacted by the phase down of voice services. This change might signal the right time for you to consider a migration to Voice over Internet Protocol (VOIP) which has been shown to be more cost effective over time than traditional voice service. 

#5.  New Ways to Calculate Discount

E‑rate applicants will enter the 2015 funding cycle faced with a new way of determining their discount levels.  There are three big changes that ed-tech leaders should pay attention to, amounting to the new “what, who and how” of E‑rate discounts.  The first relates to a change in what the top discount level is for category two funding.  The second refers to whom a discount level applies.  And the third relates to how the urban/rural classification is figured, which in turn can impact discount levels. Heading into the competitive bidding season, this new math can significantly impact a school district or library system’s budget.

Let me drill down a little deeper on each of these.  The first is the easiest to address.shutterstock_210167089  Basically the FCC, for the first time ever, is changing the discount matrix, and requiring applicants for category 2 services at the top discount level to increase their minimum contribution from 10% to 15%.  The rationale for this change is that it spreads the E‑rate dollars more broadly and incentivizes school districts to doggedly pursue the most cost-effective solution.  While these may be valid reasons, the increase still hits school districts in their wallets.

One way of thinking about who discounts apply to is that they now never apply to a single school within a district, even if it is the only school receiving a certain service.  Discounts are now figured at the district level and apply to all schools within that district. Period. The same applies to the urban/rural designation.  This classification also applies to the entire district with a district being rural if greater than 50% of its schools are in rural areas. To illustrate the new rules, let’s take a simplistic example of a two-school district, School A and School B.  In the past, School A figured its urban/rural status based on its geography.  And its National School Lunch Program (NSLP) percentage was based on its own student count.  Likewise for School B.

The new math requires School A and School B to simply average their NSLP count and arrive at a single discount level. This could send tremors through school districts’ budgeting process, either positive or negative.  To illustrate the dilemma, let’s assume that School A has twice the students as School B, and a higher discount level. The new averaging scheme would likely negatively impact this school district, assuming it has significantly higher costs for School A due to its greater size.  These costs would receive a lower discount and would probably not be offset by School B’s slightly higher discount rate.

The district would also follow the 50%+1 rule for urban/rural, which means it would now be classified as urban for purposes of calculating its discount level.  The way the new urban/rural classification works, based on a definition used for the 2010 U.S. Census, penalizes many applicants who have historically been designated as rural for purposes of determining their E‑rate discounts.  The new definition includes as urban those areas the Government labels “urban clusters,” basically smaller towns of between 2,500 and 50,000 people.

Unless the FCC reconsiders its rural definition, thousands of school districts and library systems could see 10 percentage point reductions in their discount levels in 2015

As a provider of broadband solutions in rural America, Affiniti has joined with other stakeholders requesting that the FCC reconsider this definition.  Given the E‑rate’s mission to level the playing field between urban and rural—coupled with the unfortunate fact that historically rural school districts have paid more for the same services their urban counterparts receive—it makes sense for FCC Commissioners in D.C. to subject this new definition to the reasonable person test.  In Colorado, for example, 56 communities—from Rifle and Gunnison in the west to Yuma in the east—currently enjoy a rural designation and potentially a higher E‑rate discount rate.  However, the new Census definition would flip them into the urban category, burdening districts similarly situated with potentially thousands of dollars in additional costs.

It is expected that the new online Form 471 and Urban/Rural Look-up Tool that USAC is rolling out for the application window will simplify the bean counting.  That will be a welcome relief for applicants.  At the same time they will want to understand the impact on their bottom line as changes in discount levels translate into very real IT budget line items.  Schools work with tight budgets and often have a razor-thin ability to make mid-course corrections in their IT planning.

The new discount math impacts districts in three distinct ways, sending tremors through your budgeting process. Understanding these changes is critical to knowing your costs to enable the purchase of the services you need, when you need them.

Find the right technology partner to understand and exceed your expectations

Necessity is the mother of invention.  Hopefully the necessity of absorbing the variety of new E‑rate rules, including many with big budgetary implications, might provide an opportunity to rethink not just what services are required to meet school and library needs—but how they will be delivered.  Finding the right trusted partner who thinks in terms of your total solution in leveraging the benefits of broadband will be critical in a time of rapid changes in the E‑rate program. Managed VOIP and Wi-Fi offerings may suddenly appear more attractive in the wake of service eligibility and discount changes. Sometimes sudden change can surface opportunities that would not have appeared otherwise.  Knowing the new E‑rate rules of the road is critical to be equipped to take full advantage of them—to propel your school district or library into a technology-rich learning future.

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